How to Get a Loan for Your Small Business

Thinking of opening your first brick-and-mortar retail store? While retail storefronts can be an exciting and potentially lucrative venture, even the smallest of stores require some upfront capital to get up and running. So, you're likely wondering how to get a loan for your small business venture.

According to one account from Forbes, aspiring retailers should expect to invest around $100,000 for renovations on your desired space and the cost for your first round of inventory to stock your store. While you might not require that much to start or expand your current business, who has even half that amount of cash sitting unused in a bank account?

The amount you’ll need will depend on a variety of factors, including the local market, your industry and niche, your geographic location, and the specifics of how you’ll use the cash. To get started, many startup retailers opt to pay a visit to their local financial institution for some assistance. A small business loan can get you financially on your feet to allow you to get all the inventory, supplies, equipment, and pay for your space and utilities without straining your own personal bank account too much.

Small business loans can be a great way to kickstart your new business or help you grow at an accelerated pace. But how do you get a small business loan — what does the process entail? The loan application alone can seem daunting, but it doesn’t need to be overwhelming. Here we’ve outlined the primary steps on how to get a loan for your upstart retail business.

How To Get A Loan: 5 Steps for Success

Do Your Homework

Firstly, you’ll need to put some work in and get your research in order. You should have a demonstrable understanding of the current retail market (as well as your desired market niche), your business’ place in the industry, and a solid business plan ready to go. For more on how to writing a business plan, check out our blog Write a Business Plan Lenders Can’t Shrug Off.

Next, you’ll need to figure out how much money you need for your loan. You may be weary to ask for too much money and scare off potential lenders, but you don’t want to underestimate it either. In the article “7 Steps to Getting a Business Loan” Forbes warns small business owners, “Most small businesses don’t ask for a large enough loan. Underestimating the amount of money can lead to problems with a lack of working capital sooner than planned. Overestimating can make lenders question the business owner’s assumptions and credibility.”

You’ll also need to outline where the money you’re asking for will be used. Be mindful of what you’re asking for the loan for, as Forbes advises:

For help when outlining your projected costs for various equipment and supplies, contact a few local vendors for estimates and project quotes. Adding this layer of specificity into your business plan will show potential lenders you’ve really done your research. And this can help ensure you don’t ask for too much or too little for your small business loan.

During the research phase, you should also begin to understand the long-term forecast of your business loan — it’s important to know what you’re getting into and budget accordingly. Use Shopify’s Small Business Loan Calculator to identify how much the loan will cost and how much you’ll end up spending on repayment.

Know Your Financial Health

Before you apply for any kind of business loan, you need to know the financial health of your business and be prepared for what the lenders will be looking at — you don’t want to be caught off guard or look ill-prepared.

Credit score: A credit score of above 650-700 is considered acceptable, but does not guarantee a loan. Most lenders will look for a credit score that is at least in the 700-800 range. Not sure how to check your credit score? Contact at least two of the major credit bureaus (such as Equifax and TransUnion) to request a free report by mail. Compare the entries on both to ensure both are comparable and are error free. This ensures you won’t walk into a lender and be smacked with a surprise on your credit report during a loan meeting.

Debt to income: Personal debt payments should not be more than 33% of gross monthly income. To help you calculate this ratio, try this online calculator from Credit.com.

Time in business: Lenders give unsecured working capital lines and term loans to businesses which are over two years old and have a reliable record of incoming accounts receivables. You can get this figure from your small business accounting records—it's relevant for existing retailers who are seeking loans to expand their businesses.

Report on industry risk: Industry risk is rated based on the government Standard Industrial Classification (SIC) codes which are ranked. A small business owner needs to find out how their industry is rated. For more information on SIC codes, visit the U.S. Department of Labor website.

Report on cash flow: The higher the operating cash margin, the better the chance is for a business to survive slower market conditions and ensure long term survival and growth. In the final analysis, most lenders give money based on the company’s cash flow since it measures the ability to successfully repay the loan.

Find the Right Lender

There are multiple kinds of lenders for your small business loan. What’s the right one for your retail company? The right lender/financial institution will also walk you through how to get a loan.

Small Business Administration: SBA loans are loans provided by SBA partners (including banks and micro-lenders) through SBA loan and grant programs that are for variety of specific business purposes. Visit their site for more info on how to get a loan through the SBA.

Conventional Banks: Most up-and-coming businesses struggle with how to get a loan through more traditional lenders like big banks. As Forbes explains, “The biggest difference between SBA loans and non-SBA conventional loans is that the government isn't guaranteeing that the bank will get its money back.” Conventional banks can be a good option to get a quick, low-interest loan, but bank loans are difficult to qualify for and often include a short repayment schedule.

Alternative Lenders: These are popular with businesses that don’t qualify for traditional bank loans, as they typically are more forgiving of inexperience and bad credit. Alternative lenders can provide quick turn-around compared to any loan that involves a government agency and some even allow applicants to apply online. Because of the favorable success rate and ease of application though, alternative lenders often charge high interest rates for their loans.

Shopify Capital: Shopify helps entrepreneurs get the funds they need to grow their businesses. With no application process or forms to fill out, securing capital has never been this simple. Check out if Shopify Capital is right for your retail business, and if you’re eligible.

Prepare the Paperwork

Once you’ve done your homework and selected the right lender for your needs, it’s time to get to work on the paperwork. Ensure that you’re completing everything the lender requires and following instructions carefully — government agencies and banks can send back an application for something as minuscule as signing outside the box.

Take your time preparing important documents, like your business plan, and make sure that your taxes are up-to-date and in good standing. Also, be mindful of your company’s online presence — chances are the lender will take the time to look you up and get to know your business as best they can.

Final Steps

Applying for a small business loan can be stressful and time-consuming — don’t get discouraged if it takes a few times through the application process to be successful. After you do find the right lender, it’s important to be patient. The whole process can take a few weeks, depending on who you’re working with and the kind of loan you’re getting.

Now that you're familiar with how to get a loan for your small business, tell us about your experience. Were you able to get a small business loan for your retail business? If so, what do you attribute your success to? Tell us about it in the comments section.

About the author

Lauren Ufford

Lauren Ufford is a writer and editor with expertise in retail, ecommerce, and tech. Originally from the West Coast, Lauren spends her free time exploring Toronto with her family.